What is Foreclosure?

What is foreclosure?
Foreclosure is the sequence of legal proceedings by which a lender sells or repossesses a home when the homeowner has stopped making payments on the mortgage. Nobody wins in a foreclosure. Homeowners lose their homes and often their life savings, while financial institutions rarely recoup their losses from defaulted mortgages.

Foreclosures are on the rise, up by about 25 per cent annually over the past two years in Alberta. Statistics from the province show a total of 5,746 properties were foreclosed on between April 1, 2016 and March 31, 2017. Of those, 2,277 were in Calgary. The Alberta total for the same time period the previous year was 4,556. In 2015, the total was 3,675. Given the economic downturn, this is an unfortunate reality for many Albertans.

What’s the process?
Missing one payment will not necessarily result in foreclosure. Lenders don’t want to foreclose if they don’t have to because it’s an expensive and lengthy process. If you don’t pay your mortgage, the lender will likely call you or send you a letter. This is the best time to contact your lender to arrange payment. If you continue to miss payments, you will receive a letter from the bank stating what is owed in missed payments and fees (arrearage) and a date by which to pay the arrearage before foreclosure proceedings will begin. If you can’t come up with the money by the specified dates, the lender will hire a lawyer. You’ll get a letter from that lawyer asking you to pay either the arrears amount or the full amount due on the mortgage, depending on the bank’s preference. If you fail to meet this deadline, the lawyer will file a foreclosure petition. The hearings begin about a month later. At this point, the judge may give you time to redeem the loan (generally three to six months). If you don’t redeem it during that time frame, the lender can either get an Absolute Order of Foreclosure (property is not sold but is transferred to the lender in satisfaction of the debt – bank owned) or ask to have the court list the property for sale (judicial sale). It is the judge whom decides if an offer is fair and if it should be accepted because in Alberta, the court decides who the new buyer will be and the price for which the property will sell for judicial sales. The sale proceeds are used to pay back all debts, in priority order, on title.

There are things a home owner can do to stop the process, to save from losing your home and seriously affecting your credit rating. If you are unable to make your mortgage payment:

1. Don’t ignore the problem – the further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your lender as soon as you realize that you have a problem.

3. Open and respond to all mail from your lender – your lender can provide you with some options to prevent foreclosure if you act sooner than later.

4. Know your mortgage rights – find your loan documents and read them so you know what your lender can do if you can’t make your payments.

In the event that you are unable to come up with the funds to save your home from foreclosure, you might want to consider selling to a cash buyer. Selling to a cash buyer has some great advantages – quick sale and closing, no repairs required, no agent commission, no extra fees and hassle-free. If you have any questions about what is foreclosure, just give us a call or email.